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The road ahead for Scotland’s buy-side

The Scottish independence referendum is
just 10 days away, which means it might be worth considering what it will mean
for the many asset managers based in what may soon become the world’s newest
independent nation.

Scotland is well known for its beautiful
countryside, fine whiskies and a surprisingly large asset management community.
This community has likely been bolstered by the role of London as the financial
hub of Europe, but with the ‘Yes’ campaign gaining ground in recent weeks,
could we see an end to the Scottish trading desk?

A senior trader based in Scotland has
suggested that, right now, there is very little difference in hosting a trading
desk in Scotland compared to London, but independence could change things
considerably.

One major insurer and asset manager,
Standard Life, has already declared it would relocate south of the border in
the event of independence, while others, such as Aberdeen Asset Management,
have already moved their headquarters.

Whether or not more firms look to move out
of an independent Scotland will depend on a number of factors, many of which
remain unclear.

One that has been endlessly debated in the
campaign so far is currency, but little has been decided. While the UK
government has rejected a proposal for a currency union, joining the euro is
also far from guaranteed as the EU has yet to indicate whether Scotland would have
an easy ride joining the European block. In the short-term at least, it seems
likely Sterling would continue to be used, or potentially a Scottish pound
pegged to Sterling, but until the picture becomes clearer, Scottish asset
managers will need to consider how this could impact their settlement
processes.

Taxation, trade deals and regulation could
also influence Scottish asset managers’ decision to stay or go in the event of
independence. If Scotland ends up a non-EU member, then it might be freed from
some onerous regulation stemming from Europe, however it would still be constrained
when trading with European counterparts, perhaps even more so in some cases.

Furthermore, with the UK government
proposing a referendum on EU membership, the future could see the bizarre
situation where Scotland is an EU member and the rest of the UK is not, raising
questions over what this could mean for Scottish firms trading in stocks from
south of the border.

There’s also a question of where Scots
would naturally look to trade shares. Most large Scottish businesses would
likely continue to be listed in London, but might Edinburgh or Glasgow look to
set up their own exchanges, which firms would list there, and in the post-MiFID
world does it even make sense to create a new national exchange?

Next week’s referendum will prove to be a
decisive moment in not only Scottish history, but that of the entire UK, and
will have widespread repercussions for both sides. With polls currently on a knife-edge,
it could be prudent for the British buy-side to start making contingency plans.